Net Leased Property Market Heats Up

NNN Lease Market News

The record-setting $14.5M purchase of a CVS net-lease property in Adams Morgan last week confirmed what everyone's thinking: prescription drug prices have gotten way out of hand. We'll be sure to ask President Obama about that in Charlotte. But something else the deal shows, Calkain's Rick Fernandez tells us, is investment demand for the sector in DC is approaching historical highs.

 As with other real estate assets, investors are drawn to DC's triple-net market for its resiliency. "This market has weathered recessions very well," Rick (above, with his sons Alex and Jack at Sunday's Nats-Cards game) tells us. "In terms of investor demand, it's right up there with New York City." Combine that with minimal construction starts and economic uncertainty and you've got a recipe for shrinking cap rates—the Adams Morgan CVS traded at a sub-6% cap.

 Here's the Adams Morgan CVS. In large part, pricing and demand are being driven by 1031 exchange buyers and high-net-worth investors concerned about their financial health, Rick says. Net-lease properties with a strong credit tenant provide cash flow and income with a real estate backstop that provides a measure of security that the stock market can't equal, and "now is an extremely favorable time for sellers of net lease properties." Institutional players are in the market, too, he tells us, but private buyers have provided the majority of aggressive offers in DC so far this year.

 Rick tells us urban locations are the most sought-after because of economic stability, population growth in the urban core it's easier to find replacement tenants in a tight spot. "At a pad site in front of a big box in the suburbs, you have fewer options to replace a tenant. If you're downtown, a 4,000 SF rectangle has a wide variety of tenants to attract."

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Net Leased Investment Sector Continued to Gain Momentum

NNN Lease Market News

The U.S. retail investment sales market staged a strong performance last year as property sales rose 32 percent from 2010 to nearly $61 billion.

Prices for power centers and neighborhood centers increased 9.1 and 7.2 percent, to $148 and $135 per square foot, respectively.

While the highly coveted single-tenant net-lease investment sector continued to gain momentum, shopping centers and other multi-tenant properties captured nearly 68 percent of total sales, for which cap rates compressed by 40 basis points.

How are single-tenant, net-leased investments different from multi-tenant buildings?

Multi-tenant buildings have more than one tenant, and as a result, owners and landlords must juggle multiple leases that begin and end at different times. These leases are rarely longer than seven years. That means that the building's financial performance is vulnerable to the ups and downs of the market.

Many net-lease investors have previously owned other types of real estate but are looking for an investment that requires less maintenance and supervision. For example, many apartment investors end up selling their high-maintenance properties and then reinvesting the sale proceeds in single-tenant, net-leased retail properties, as do many land owners who have previously never received any income or tax benefits from their property.

Who can invest in single-tenant, net-leased properties?

Net leased properties are appealing to a wide variety of buyers, from high net worth individuals to partnerships to large institutional investors like real estate investment trusts, life insurance companies and pension funds. Net leased properties also are very attractive to investors who need to do 1031 tax-deferred exchanges, or 1031 exchanges for short.

What are the benefits of investing in single-tenant, net-leased properties?

Many people consider single-tenant, net-leased properties as bond-like investments because of their stable, predictable returns. Because tenants commit to long-term leases, there's very little re-leasing risk. Moreover, single-tenant, net-leased investments can be tailored to an investor's risk-reward expectations by choosing tenants with different credit profiles. For example, some tenants are rated by national credit ratings agencies while other tenants have only their previous financial performance to recommend them.

When is the best time to invest in a single-tenant, net-lease property?

Net-leased properties are like all-weather tires. They are good investments in both good and bad economic times and in hot and cold real estate markets. Here's why: a single-tenant net lease is guaranteed by a long-term lease at pre-set rental rates. As an owner, you know exactly who will be a tenant in your building, how long that tenant will be there and exactly how much rent they will pay you. That means you will derive a steady income from your investment, regardless of how the economy or real estate market is performing.

Gateway investment markets New York, Northern New Jersey, Los Angeles, Chicago, Washington, D.C., South Florida and Boston dominated this investment activity.

NNN Walgreen in Texas Close for $7.3 million

NNN Lease Market News

Net leased Walgreens sells for $7.3 million in McKinney, Texas

McKINNEY, Texas - In a quick-moving, all-cash close, a private family trust from California has paid $7.3 million for a 14,820-square-foot store, net leased until 2033 to Walgreens.

Jim Casale, principal in the San Diego office of Lee & Associates, represented the buyers. Brad and Gavin Kam of Net Lease Realty Advisors in Dallas marketed the property for the sellers, JK 720 Custer LLC. The Walgreen build-to-suit delivered in 2008 at 8996 Stacy Rd. in the 2,500-acre Craig Ranch. The Deerfield, Ill.-based pharmacy chain's long-term lease includes options.


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